2009 (10) TMI 185 - AT - Service Tax

Manpower Recruitment or supply agency s services- The assessee was engaged in supplying of manpower and had obtained a registration as a manpower recruitment agency services. However w.e.f. 16.05.2005 definition of service was amended and supply of manpower to a client was included in the definition. A show cause notice was issued on 5.1.2007 to the assessee for recovery of service tax for the period from 16.06.2005 to 31.3.2006. Adjudicating authority confirm the demand. Held that-the terms of contract were very clear and that was nothing but supply of manpower and was covered by the definition of services. Coming to the question of suppression, in view of the fact that the assessee himself had surrendered the registration certificate on 1.6.2005 and within 15 days the definition changed, reasonable argument would be that the assessee was aware of the amendment in the law and the consequent liability to pay service tax on him. Merely because the department did not issue a show cause notice with in the specified period, the assessee could not escape the liability. The department could not be said to know that the assessee was engaged or continued to be engaged in supply of manpower. Therefore, it had to be held that the SCN was not time barred. As per section 80 penalty imposed u/s 76 and 78 is liable to set aside.

Summary

Issues:
1. Whether the appellant's service is covered by the definition of manpower recruitment or supply service.
2. Whether the appellant is liable to pay service tax for the period in question.
3. Whether the show-cause notice issued to the appellant is time-barred.
4. Whether penalties under sections 76 and 78 of the Finance Act, 1994 should be imposed on the appellant.

Analysis:

Issue 1:
The appellant argued that the service provided did not fall under the definition of manpower recruitment or supply service. The contract terms focused on specific work tasks rather than the number of laborers provided. However, the Department contended that the contract required the appellant to supply laborers as per the company's needs, indicating a labor contract. The Tribunal examined the contract terms and concluded that the service was indeed a supply of manpower, as the payment was based on the number of laborers supplied, not the work done. The Tribunal rejected the appellant's argument, stating that the terms clearly indicated a supply of manpower service.

Issue 2:
The appellant was issued a show-cause notice for service tax recovery for a specific period. The appellant had surrendered the registration certificate before the definition of service was amended. The Tribunal held that the appellant was aware of the liability to pay service tax post-amendment. The show-cause notice was deemed not time-barred, and the appellant was held liable to pay the service tax for the period in question.

Issue 3:
The appellant had paid a portion of the service tax before the order was passed, but the correctness of the amount paid was not verified. The Tribunal noted discrepancies in the amount paid and the demand. Considering the ambiguity in the contract terms and the appellant's perception of not being covered by the service, the Tribunal decided to apply leniency under section 80 of the Finance Act, 1994. Penalties under sections 76 and 78 were set aside.

In conclusion, the Tribunal upheld the service tax liability for the appellant, dismissed the argument of the service falling outside the definition, deemed the show-cause notice as not time-barred, and applied leniency in penalties due to the ambiguity in the contract terms.